Tutorial - Cost Benefit Calculations Page 2
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3Tutorial - Cost/Benefit Calculations - Week 5
Tutorial - Cost/Benefit Calculations - Week 5
Hotel Example: ROI Analysis
Hotel Example: ROI Analysis
Expansion in Year 2
Option 2: Deploy New Automated System
The number of rooms is doubled but the occupancy rate remains the same, thus
For this option we are assuming the purchase of a customizable software system.
average number of customers per day is doubled. Therefore the yearly loss from
Background Information and Cost/Benefit Calculations
underbilling errors, and the daily cost of over-billing is simply doubled (conveniently). As
the number of customers doubles, the time to perform updates doubles, therefore the
Two Separate Interconnected Systems:
Employee Costs of Updates per Year also doubles.
Restaurant System:
Yearly Loss from Under-billing:
$14,600
Yearly Loss from Over-billing:
$182,500
Upfront Costs
Employee Costs of Updates per Year: $43,800
Total Yearly Costs of Expanded System:
Hardware and Software Costs:
$3,000
Upfront Customization Costs:
5 hours at $50/hour = $250
Using this information now calculate:
Training Costs for Hotel Employees:
5 hours of training * $15/hour = $75
1. Net Present Value
Training Costs for Trainer:
5 hours of training * $50/hour = $250
Total Restaurant System Development Costs = $3,575
Maintenance Costs per Year
2. Payback Period
Software Content Changes:
average 1 hr/week * $50/hr * 52 weeks = $2,600
Front Desk/Management System
3. ROI
Upfront Costs
Hardware and Networking Costs (backup
system included):
$20,000
Software:
$150,000
Software Customization:
$50,000
Pay TV Software Module Acquisition:
$5,000
Hotel Staff Training Costs:
50 hours * $15/hour = $750
Trainer Costs:
50 hours * $50/hour = $2,500
Total Front Desk/Management System
Development Costs:
$228,250
Maintenance Costs per Year
Part-time Maintenance Person
who does backups, training:
average 5 hrs/week * $50/hr * 52 weeks = $13,000
Software Changes:
average1hr/week * $100/hour * 52 weeks = $5,200
Total Yearly Maintenance Costs:
$5,200 + $13,000 = $18,200
Totals
Total System Development Costs
$228,250 + $3,575 = $231,825
Total Yearly Maintenance Costs
$18,200 + $2,600 = $20,800
pg. 3
pg. 4
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